The practice of performing recovery audits originated in the early 1970's, during a time of increased commerce for the retail industry. A growing network of national chain stores led to a rise in competition for retail shelf space from different suppliers. Large companies had a difficult time keeping track of the many different vendor price points, rebates, and other various discounts.
Keeping track of such details was not an integral part of purchasing departments. Such oversights led to a substantial amount of lost revenue going unnoticed in the form of duplicate payments, overpayments, missed shipments, unused credits, and other transactional errors between a company and its suppliers.
Accounts Payable Audit
Today, in a typical accounts payable (A/P) audit, auditors work with the A/P records of a company in an attempt to find potentially profitable discrepancies in a vendor transaction file for the company or individual business units of the company. Although much of an A/P audit can be performed at a third party location, the A/P audit generally requires the cooperation and time of individuals within the client-organization to work in conjunction with the auditors. The A/P audit is a useful tool but can be time consuming for the client. However, typical A/P auditing firms are unable to do a thorough job of reviewing vendor data.
Statement Audit
Another type of audit emerging within the auditing industry is a statement audit (SA). A SA is initiated from the vendors' records and, thus, requires little, if any, intrusion within the client-company. Once vendor files are secured, the auditing company begins the process of searching for gaps, differences, and discrepancies that result in the client-company losing revenue. FIG. 1 shows a prior art statement audit method that includes a step 110 of recording contact information of a vendor, a step 120 of reviewing only open line items corresponding to the vendor, a step 130 of identifying claims among the open line items, a step 140 of validating the identified claims, a step 150 of storing the validated claims, and a step 160 of invoicing the stored validated claims. Recording contact information of a vendor 110 is typically done manually by a person.
A SA deals directly with suppliers and vendors. However, if performed properly, a SA yields findings that an A/P audit could miss. Because of the unique nature of a SA, the SA can either stand alone or function alongside typical A/P recovery efforts. A SA is very labor intensive because the SA audit requires the requesting, receiving, organizing, and following up with vendors on auditing data from many sources. In some statement audits, the number of sources ranges in the tens of thousands of sources. Due to the labor intensive demands of a SA, very few A/P auditing firms in the A/P auditing industry, if any, have the capability of doing a thorough and complete job for their clients.
Prior art statement audits fail to manage credits based on line item data or on a line item basis. Instead, prior art statement audits attempt to manage credits based only on statement level data, which is not as detailed as line item data. Prior art statement audits typically only deal with open line items. Prior art statement audits put each open line item in a file and then record a note for each open line item indicating that the open line item should be checked at some point in the future. In addition, prior art statement audits only keep track of claims. Prior art statement audits fail to keep track of every line item of a client.
Transactional Errors
There is no accepted way to predict the success of an audit. However, a general rule of thumb is that transactional errors occur with a frequency of about 1/10 of 1%. That translates to a million dollars of annual recovery for every billion dollars of a company's annual revenue.
The A/P auditing industry is growing in size and stature as third party A/P auditing firms attempt to recover lost profits for their clients. However, since A/P auditing firms are unable to do a thorough job of reviewing vendor data, clients have employed internal auditors in order to recover lost profits via a statement audit. However, clients typically are unable to perform statement audits because they do not have the amount of staff necessary to perform a statement audit. Therefore, a method and system of managing accounts payable auditing data is needed.